Rescue plan deal boosts demand for Greek debt

A DEAL to provide an EU-International Monetary Fund (IMF) credit line for Greece boosted demand for its debt but investors still sought penalty interest rates from the country even as it sold more short-term bonds than planned.

Greece took advantage of the EU agreement for last-resort aid three days ago to return to the debt markets yesterday. Heavy demand for its paper meant Athens passed the first big hurdle since euro-group finance ministers spelled out their terms for a rescue.

In some quarters it had been speculated that Greek prime minister George Papandreou would seek to trigger the EU-IMF plan this week if borrowing costs did not subside.

The country’s debt agency sold €1.56 billion of six-month and one-year treasury bills, above the €1.2 billion it originally planned for the auction. Although interest rates were well below the record levels last week, they were more than double the price in auctions only four months ago.

The six-month paper was sold at a yield of 4.55 per cent and the one-year paper was sold at 4.85 per cent, compared to the 2.2 per cent yield on 12-month paper bonds sold in January.

With the paper heavily oversubscribed, the euro traded yesterday at its highest level against the dollar in three weeks. But the tender was seen as only a preliminary test ahead of a planned government sale of a 10-year €8.5 billion bond next month, as long-dated paper is harder to market than short-term debt.

Selling that debt will be the country’s single-greatest challenge as it tries to find a market for a further €10 billion in paper by the end of May. However, Greek finance minister George Papaconstantinou said yesterday the government was determined to pursue its plan without recourse to the EU-IMF rescue net.

“We are sticking to our target and I believe we will continue to borrow from markets smoothly, as we did today,” he told parliament in Athens. “The Greek government has not asked for the mechanism to be activated, although it remains available if needed.”

Euro-group finance ministers struck a deal on Sunday to provide up to €30 billion in bilateral loans to Greece if needed, a facility that would be topped up with some €15 billion from the IMF.

The finance ministers have a scheduled informal meeting in Madrid on Friday. Their agreement to finalise terms for a rescue net for Greece during a weekend phone conference served to avert a build-up of market pressure in the run-up to the Madrid meeting.

They will discuss draft proposals from European economics commissioner Olli Rehn to toughen budgetary surveillance of member states.